Philippine Election Myth: New President Will Determine Direction of Economy And Markets

The notion that an elected political leader will "determine the fate of the economy or the markets" is a popular myth.

It is a myth which is repeatedly peddled by government to present accomplishments. And it is an illusion because the essence of government is to redistribute and consume resources forcibly extracted from productive sectors of the economy.

In the monumental words of Frank Chodorov, ``The intrusion of politics into the field of economics is simply an evidence of human ignorance or arrogance, and is as fatuous as an attempt to control the rise and fall of tides. Since the beginning of political institutions, there have been attempts to fix wages, control prices, and create capital, all resulting in failure. Such undertakings must fail because the only competence of politics is in compelling men to do what they do not want to do or to refrain from doing what they are inclined to do, and the laws of economics do not come within that scope. They are impervious to coercion. Wages and prices and capital accumulations have laws of their own, laws which are beyond the purview of the policeman."

If government can defeat the law of scarcity then poverty and inequality would have long been vanquished from this world and everyone can just have fun! But this simply isn't so.

And applied to elections, as author and professor Steve Landsburg in his blog aptly writes, ``The primary problem with representative democracy is that our representatives are captured by special interests." (bold highlight mine)

Election is, thus, a question of, redistribution for whose benefit? Or asked differently, which among the special interest groups will the new leader be working for?

What we are trying to say is the political winds will tend to blow into three basic directions:

1. increased socialism (which is deemed high risk because the distribution of resources is heavily politicized by the leadership; this means that such actions are likely to be influenced by favoritism, affiliations, patronage, cognitive biases, subjective interpretation of events, or etc... than public weal. In short, special interest groups have big influence in shaping the economy)

2. status quo

3. increased liberalization (lesser impact on the actions of leadership, because markets play a greater role in the distribution of resources than special groups)

And it is the same set of questions that needs to be asked relative to the forthcoming Philippine elections, for whose special interest group will the new leader/s be working for?

If we exclude the "election spending" factor and instead base our extrapolation on historical trends of Philippine politics and merge this with the qualifications (or previous records) of the frontrunners and present political realities, our guess is that the policy imperatives by the new President will be to maintain the status quo and work for the changes at the margins for 'special groups'.

In addition, considering the reported "tightness" in the race for the top spot in the current presidential derby, the new President is likely to get exhaustively engaged in "horse trading" just to be able to generate a coalition from various parties to support such "changes". This means alot of political concessions.

Think of it, in the US even if the Democratic party holds the majority in both Congressional houses, political dominance hasn't equated to successfully ramming down the political reforms on the throats of public, as in the health and climate bills. What more if there is no significant political support?

Alternatively, political straddling implies heightened odds of a status quo, which chimes with our historical political trends.

As Joe Studwell rightly argues, ``The lesson of the past decade has been that the relationship between political and economic elites in Southeast Asia is more enduring than almost anyone imagined."

And how has this worked in the past?

Adds Mr. Studwell, (bold emphasis mine)

``To this day, there are precious few Southeast Asian tycoons whose wealth is not rooted in some form of state-sanctioned monopoly. (The exceptions are a couple of lesser Hong Kong billionaires, Patrick Wang of micromotor maker Johnson Electric and Michael Ying of clothing business Esprit, whose money was made in recent years in manufacturing in mainland China.) Soft-commodity monopolies for consumer items like sugar and flour produced early cash flows for Indonesia's Liem and Malaysia's Robert Kuok. Gaming licenses primed Stanley Ho in Macau and Lim Goh Tong, Ananda Krishnan and Vincent Tan in Malaysia, and lumber concessions made Mohamad (Bob) Hasan, Prajogo Pangestu and Eka Tjipta Widjaya in Indonesia.

``In Hong Kong and Singapore, real estate became an effective cartel because of the way British colonial regimes structured the land market—selling off "crown land" in large lots that created a barrier to entry for all but a few big players. In the 1990s land packages in Hong Kong were commanding prices of about US$1 billion. The city-states also restricted access to their banking markets, creating other huge rents for local players; the biggest of all went to the institution that is now known as HSBC.

``After access to concessions, access to capital was the second prerequisite of Southeast Asian tycoons. Elsewhere in the region, tycoons used their political influence to secure credit lines from state banks or opened their own institutions, which served as private piggy banks. The Philippines has lurched from one banking crisis to the next for almost a century, some based around state banks and others around private banks set up by tycoons. The country has never recovered from the financial-sector meltdown in the mid-1980s, when Marcos went into exile."

Looking at the roster of publicly listed companies in the Philippines one can observe such traits (state monopolies, cartels, and etc.).

And as a political force, the economic elite is likely to be among the top contributors to financing the present elections. So in our view, the odds for a radical transformation is not imminent and is unlikely to pose as a threat.

Finally, the direction of political winds in the Philippines is likely to get influenced more by our deepening interactions with external forces-particularly, the new free trade zone (with ASEAN and China), China's growing role as a major political force as regionalism deepens, a deeper impact from globalization buttressed by technology and OFWs (or migration flows) and deepening financial globalization which includes transmission effects of inflationism, steep yield curves, bubble policies and etc. as we previously discussed in [Why The Presidential Elections Will Have Little Impact On Philippine Markets]

Since political forces are inherently reactive, the new President will respond to and not determine economic and market actions.